Reonomy’s Richard Sarkis Talks Growth After Altus Acquisition

Altus bought early data cruncher Reonomy for more than $200 million in November. Its focus could now stretch well beyond core US markets.

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Like Jeff Bezos, Reonomy co-Founder and Executive Chairman Richard Sarkis started out as a book-selling entrepreneur. Obviously, their paths diverged from there, but ultimately both share successful startup stories.

Sarkis co-founded and was the CEO of Reonomy, eventually becoming executive chairman of the real estate data company more than a year ago to focus on strategic partnerships. Out of that focus came Toronto-based data giant Altus Group’s $201.5 million acquisition of Reonomy in November.

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PropTech Insider talked to Sarkis on Dec. 20 about how a liberal arts  undergrad got interested in commercial real estate and built a proptech startup that wasn’t too early or too late, but  just right for its clients and an eventual acquisition.

The interview has been edited for length and clarity.

PropTech Insider: Reonomy was one of the early proptech startups. What made it successful, and, eventually, so attractive for acquisition by Altus?

When I founded the business almost a decade ago, we really centered around technology. When I looked at the space as a class, I was a total outsider. Frankly, I didn’t even think about commercial real estate until I met Charlie [Oshman], my co-founder, and we started incubating this idea. We said if others are using people to gather and validate normalized data, we will use machines to do the vast majority of that and then we’ll layer in humans — what’s called now human-in-the loop curation, but it was technology centricity. That allowed us to scale much more efficiently and quickly than we would have if we would have used only people to do the research and the data entry.

To answer the second part of your question, it made us very attractive to a lot of folks in the industry and not just from a [mergers and acquisitions] perspective, but a partnership investment perspective. We were very successful raising money from a number of venture capitalists. A number of strategic investors like banks Wells Fargo, Citigroup, JPMorgan had an ownership position in Reonomy. 

Macro-wise, I think it’s the technology that developed at frankly great cost and [at a] time to build the knowledge graph that we have, which brings together properties, companies, people and transactions, and allows us to answer the really tough questions in the space. I would boil it down to [tech] and, of course, we built an amazing team of professionals over the years.

You describe yourself as a lifelong entrepreneur. How did that start?

I’ve been an entrepreneur for as long as I can remember, going back to when I had hair on my head. Back in college, I started my first business. The sexy way of describing that business was an international arbitrage business. Really, I was sick and tired of paying an arm and a leg for my college textbooks. So, together with a couple of buddies, we found out that you can buy them and then import them from overseas at a fraction of the cost that they’re sold for here. The exact same textbooks. Long story short, we set up a whole virtual supply chain; business took off like gangbusters; but the large publishers didn’t like what we were doing to their price discrimination model, so they effectively shut down our wholesale suppliers back in Europe. 

But that did give me the entrepreneurial bug.

What attracted you to commercial real estate and made you realize data was a huge pain point?

What resonated with me were three things. Number one, the sheer size of the asset class. 

Number two, to your point, it was massively inefficient. Despite all the big multimillion-dollar, sometimes multibillion-plus-dollar decisions that are made on the debt and equity side, access to pristine, validated, normalized, high-quality data was something that was almost unheard of.

A lot of these decisions on investment were made based on asymmetric information advantage. Like, I know something the guy across the street doesn’t and that’s why I’m going to trade on it or I know that these three contiguous tax blocks are zoned in such a way that I can tear down the buildings and build something else up. But that’s difficult to get into. That’s where brokers typically have played a very important role, sort of being the Sherpas for that data and information out there.

Number three, I was floored that there hadn’t been much, if any, real technological innovation. When I looked at the incumbents in the space, I didn’t see tech companies there and I hadn’t seen a lot of innovation. There had been a lot of innovation on the residential side with Zillow, Trulia, Redfin, and that’s continued with iBuying and all that stuff. But commercial had lagged pretty substantially. Those three things — size of the asset class, a lot of inefficiencies and pain points, and no real tech solutions in this space — and you’ve got the trifecta of opportunity that got me really jazzed up about doing something in this space.

Often in innovation, the problem is doing something that’s really good and smart, but too early, rather than too late. How did you avoid the too early trap?

It is luck and timing. There has been a lot of interest on the VC side, a lot of it driven by the stakeholders and the contingent constituents in commercial real estate, which have realized that in other areas of their life they’ve got a supercomputer in their hand with their iPhone, but, yet, when they do their day jobs, they really were sort of in a backwater situation. So there’s a lot of demand driven by them to not make it too early but make it just right. 

The trap we almost fell into is that we started initially very focused on the New York City market. Let’s prove out the mode. That’s the right thing to do. You don’t want to boil the ocean. However, the issue with that is what we had built was very specific to the way data was structured in New York City. When we tried to expand and widen that aperture and go to L.A. and then San Francisco and Chicago we were met with this holy-shit moment, which is — the data is completely different in L.A., for example. And, what makes matters worse, L.A. County is actually made up of over 80 different cities and municipalities. All of them are completely different in the way they structure their data.

So we had a lot of challenges. Could we actually scale the business across the U.S. to achieve that critical mass from a data and solutions perspective that would be necessary for the big brokerages like Cushman & Wakefield, CBRE, the big banks like JPMorgan, and for Brookfield and Tishman Speyer? They all needed a national solution.

You’re in the data business, but since COVID, is data still so valuable to landlords? Are they less concerned with cleaning and using their data, and more with holding onto tenants?

I didn’t have any experience with the global pandemic nor did I see one coming, but I have had multiple experiences with recessionary forces. I lived through the 2008 financial crisis and the dot-com bubble going up and then bursting. We’ve seen what happens to companies when they are belt-tightening and facing existential threat. They put the kibosh on any kind of spend, even if it has a high [return on investment]. The powers that be just say we have to eliminate all the spend and just live to fight another day. 

What happened this time is very interesting. I actually saw the opposite. This pandemic shined a very bright light on businesses and forced them to find inefficiencies. Invariably, where they landed is not so much data for data’s sake or cleansing data, but what are the insights and information that I can get to help me navigate this pandemic and to help me better keep my tenants; not just by begging them, but actually having a data- and insight-driven conversation with them and seeing where there’s opportunities? 

So we saw a pretty huge uptick. Clients signed multi-year enterprise deals with us to underpin their decision-making and that’s true for banks, brokerage firms and folks on the equity investing side, as well as insurance companies and service providers.

Let’s talk a little about the acquisition. What precipitated it and what do you expect to get from each other?

About a year and a half ago, I transitioned from full-time CEO running the day-to-day of the business, which I had done from the inception of Reonomy. I brought in Bill Okun, who had been on our board, to run the day-to-day so that I could sort of focus more externally on strategic partnerships with our data partners, clients and other folks in our space. I started having a bunch of conversations with potential strategic partners from a purely commercial [perspective]. “Hey, we have stuff that you want to buy, you have stuff that we want to buy, all the way through to M&A and everything in between.” 

We had a lot of interest from [special purpose acquisition companies], external investors and our data partners, who really wanted to deepen the relationship that we had with them. And we also had interest from companies like Altus, which wanted to have conversations about what a strategic partnership could be anywhere on that spectrum.

I had met with them pretty consistently over the years, but this was a completely new management team from top to bottom. The board had basically gotten rid of the old regime and brought in a bunch of folks who had a number of iterations together, most recently in the credit bureaus. So they understand data, they understand how you take all this disparate, valuable data and you turn it into insight and all that stuff. That was a little bit of a light bulb moment for me. Altus historically has always been interesting because their core product has a lot of data information. But they had always been a legacy incumbent in my mind, not really focused on modernity. 

But, when I started to meet with this new management team, I thought, “Oh, this is not your dad’s office anymore. This is a modern software technology company.” When we started peeling back the layers of the onion, it was the cliche, one plus one equals three, and one thing led to another, and it went from potential commercial agreement to partnership to full on M&A.

Acquisitions typically can be offensive or defensive. We were not selling the business. We were not shopping it around. Clearly our business was doing well. We still had most if not all of our Series D funding still on our balance sheet. 

Now that the acquisition is complete, how do you and Reonomy fit with Altus?

Reonomy is a wholly owned part of Altus for now. They’re still separate brand names, but obviously strategic discussions are still fairly early. We’ll have to figure out the best way that I’m still involved in the business and will be for a while, certainly. For us, the important thing was, as a founder and as someone for whom it’s my baby, so to speak, finding a right partner was always really important for me. So the discussions are very much centered around how do we take Reonomy, which was on a steep trajectory, and make it even steeper and help it accelerate?

For a long time, I was talking about international expansion to Canada, the U.K., etc. Obviously, the pandemic sort of put the emergency brake on that, but Altus is a Canadian company and they have a strong presence in the U.K. and globally. For us, it was also part of the equation of saying, how do we really accelerate and unlock the ability to go global because that’s something that our customers have been asking us to do for a while now.

Despite the ongoing pandemic, is that one of your goals for 2022? Are there other goals that you are focused on in that short-term window? 

Yeah, I’d say in the short term. There’s definitely integration, but let’s set that aside. Second, is definitely how do we think about our joint data assets? How do we unlock value and the insights from that? An example of that is Altus had bought a company before us called StratoDem Analytics, a company in the data science/machine learning space. If you take the data that now flows or could flow across the joint entities, you layer in some intelligence engines, and extract value and get the predictive analytics; that’s a very strong short-term goal for ‘22.

And, then, yes, we’re definitely starting to cast our gaze around: How do we take this model and export it to other countries? Altus already has a very strong data offering in Canada, for example. How do we fold that into what Reonomy has done in the U.S. and then how do we go to other key markets that our mutual large customers would like us to be in?

The inevitable questions these days: What has COVID done to your business and how do you see the pandemic’s impact going forward?

I broke my crystal ball because every time I look into it the situation evolves. And it’s so fluid now, like with this omicron variant.

One thing it has taught me as a business leader, as well as someone who didn’t believe in this — the virtual or the Google Meet, the Zooms, etc., have been unexpectedly more efficient than I thought they would be. I still clearly think that in-office has a lot of advantages that you just cannot replicate. From Reonomy’s perspective, the hybrid working model is one that I would say is likely here to stay. I think it’s one that’s been pretty effective and efficient for us. That’s probably the biggest part that has changed as a result of COVID and will continue to be a part of us as a business.

Philip Russo can be reached at prusso@commercialobserver.com.